(Casualty) Insurance For Your Portfolio

I have been on a bit of an insurance company kick these last couple weeks. I wrote extensively on AEG, a Dutch life insurance company whose charts are tantalizing, and combined with its market share power and strong balance sheet make a case for a bullish long position. As of writing this (11/30), that trade has yet to develop, but I am being patient (something I am always working on getting better at). However, I didn’t stumble across this company on my own digging. Arguably the smartest investor I communicate with shared this company with me, so I wanted to find out if there was something there. That company is United Insurance Holdings Corp. (UIHC). 

Like most of my company review, I want to give an overview on the fundamentals before diving into the specifics. Looking at the financial strength of the company, its cash – to debt sits at 5.28, higher than 54% of the companies in its industry. Debt to equity is also sitting attractively at 0.11, which is better than 83% of the competitors in its industry.

Breaking Down Ratios

Ratios are pretty much middle of the road compared to the rest of the industry. Price to Owners Earnings is 14.62, lower than 53% of the companies in the industry. The company is trading 1.42 times book value, higher than 53% of competitors. The company is trading below sales at 0.83.

Margins and profitability aren’t great in the short-term, with operating margin sitting at -7.39%, Net Margin at -4.54%, ROE% of -7.70, and ROA% of -1.98. However, a bright spot in the growth of the company is their 3-year revenue growth rate of 20.60%, better than 88% of its competitors.

Next we’ll move on to trends in Revenues, income, equity, asset, operating cash flows, and FCF.


Looking at revenues since 2012 we see a steady increase from $131.2M in 2012 to $603.27 at the end of 2016. This impressive revenue growth, however, isn’t translating into an equal steady rise in net income. This is a problem. Net income rose from $9.71M in 2012 to $41.01M in 2014, but since then has declined into the negatives, with its most recent report of -$27.37. This is also a red flag and will be a topic of further discussion in this piece.

Another trend that isn’t great is the company’s free cash flow numbers, downtrending since 2015’s high of $87.4MM, and currently sitting at $56.1MM.

However, one interesting point of mention is that there is insider buying going on quite frequently. Over the last seven months there has been four instances of insider buying of substance.

Quarterly Report Findings

As a whole, the company appears to be killing it, achieving various milestones set for itself, most notably passing 500,000 policies in force, and $1B premiums in force, all of this amidst dealing with not one, but two hurricanes this year. Speaking of hurricanes, I would be a fool to go through this analysis of the company without mentioning the impacts of the hurricanes on its balance sheets and cash reserves.

Hurricane Impacts

Not only did the company deal with two CAT4 hurricanes in one season, but they hit Florida and Texas, the two largest states for the company in terms of exposure and policies. This type of uncharacteristic event to a company reminds me of the investment letters I read from Michael Burry in which he revealed the reason his portfolio was performing poorly was due to the fact that he loaded up on a couple of airline stocks (a majority of his portfolio) days (or weeks) before 9/11.

Despite historically un-probabilistic events, the company remained strong, reporting less than 20% of their reinsurance capacity used after the two hurricanes. That is quite the safety net, and it shows the financial discipline of the company, mainly because the company cannot anticipate events like this, it can only hope to be prepared when the time comes.

Bringing in Business

Although the hurricanes took up much of the company’s time and resources in the most recent quarter, they still managed to grow their business, writing 13,000 new business policies, which is a staggering number when you realize that two of the company’s largest states were shut down for almost the entire month. Personal policies grew by 4.7%, commercial policies grew by 1.1%, and retention rate came in at 90%.


The company achieved an increase in YoY revenue of 35% thereby improving underlying ops and expense ratios. Gross premiums written were up 38%, gross premiums earned were up 54% YoY, and net premiums earned up 27%. The company suffered an increase in losses of 97% from $73MM to $143MM due to the hurricanes and the inclusion of AmCo in their equations. The hurricanes added around $83MM of net losses, which in turn added over 53 points to the net loss ratio.

If you take out the hurricanes, the company’s gross underlying loss ratio actually improved over 12 points YoY, primarily due to lower attritional loss ratios of their AmCo commercial business. Their gross expense ratio improved 1.3 points to 27.1%. They ended the quarter with $2.2B in total assets, $1B of which are cash and invested assets, and that is a substantial improved compared to their mere $400MM same time last year.

Looking Ahead

The company believes it has still $2.2B of catastrophe reinsurance remaining until about May 31, 2018. Shareholder equity declined $501MM mainly due to the net loss during the most recent quarter.

The company looks strong fundamentally, and if it has the resiliency to withstand two of the biggest hurricanes to hit their two largest policy states in the same year, I think they will be fine from here on out, as I would be shocked to see another hurricane season like this past one, although you never know. Let’s turn over to the charts to see a good entry for this company.

Let’s Get Technical


Taking a look at the chart above you can see a really nice consolidation / symmetrical triangle pattern on the weeklys. The rule from Schabacker and McGee suggest entering on a 3% breakthrough from resistance, which in this case would be anything over 17.30. That’s good enough for me. Stop loss placement will vary by anticipated holding length. If you want to hold longer, I would suggest to place your stop-loss on the bottom end of the triangle, perhaps at $14.00. If you want to play it closer to the chest, a stop loss at $15.62 will suffice.

As always, shoot holes in this argument, find out where I’m wrong, and let me know so that I can grow.



Another Retail Roadkill Candidate: Francesca’s

My analysis in the retail space is well documented on this website, as I love the idea of searching through the closet (excuse the dad joke / pun) to find an ugly sweater that I can turn around and wear to a Christmas party and impress everyone there. When it comes to analyzing retail stocks, the most important aspect of the company is its debt levels compared to its cash. Now with every company I look into, I prefer no debt, but an emphasis is placed on no debt in this case because the industry has been hit so hard, companies with any amount of debt could quickly become solvent with the inability to pay their obligations as their margins tighten and sales traffic slows.

When doing my daily look into potential plays, I stumbled across Francesca’s (FRAN). I was initially intrigued by the chart pattern, as you will see later, but the fundamentals are also tantalizing for any self – declared value investor. Before taking a look at the fundamentals, it’s important to see how Francesca’s ended up where it is now. The company’s share price has declined 60% since the start of the year, a significant decline compared to the overall surge in stocks during the same time.

Continue reading “Another Retail Roadkill Candidate: Francesca’s”

Finding Value in the Netherlands

A huge part of my trading strategy is having a global, no holds barred mindset when it comes to my search for value in the markets. Restricted to companies specifically in the US, one would have trouble finding companies trading at steep discounts to intrinsic value in these US equity markets. With the freedom associated with my global value strategy, I have the option to look to other countries, countries with not so strong ties to the US. These are the companies you wouldn’t easily find in various index funds and ETF’s, and those are the ones that I love to go long on. Remember, when it comes to equity positions, most (not all) of my findings will be in the smaller cap areas, low liquidity, and low volume. This doesn’t worry me, nor should it worry you.

I will admit that in my screening for undervalued companies (which I try to do on a daily basis) I had never come across a company in the Netherlands until today. That company is Aegon NV (AEG). GuruFocus.com defines Aegon’s business as:

Dutch insurer Aegon offers life insurance, corporate pensions, and individual savings and retirement products in a range of markets in Europe, the Americas, and Asia. Through its Transamerica brand, Aegon generates approximately 60% of pretax earnings from the United States. Life insurance and annuities are the two largest contributors to earnings, followed by corporate pensions and individual savings and retirement products.

Before diving in to the company’s fundamentals, it’s important to set out the overall macro framework in which I work with micro data such as stock fundamentals. In my opinion (which, as always, could be wrong and am open to criticism), we are still in the midst of a bull run in US equities that is getting closer to bubble territory due to the overall positive sentiments and indicators globally. With Europe scrambling post Brexit, Venezuela literally up in flames from their socialism experiment, the United States economy remains the “safest” place to invest relative to the rest of the worlds economies. Because of this narrative, I don’t see a tremendous halt in capital flows flowing into the United States, at least for the remainder of this year. With that basic framework in mind, let’s dig into AEG.

Taking a look at their quarterly transcript, I was able to find out that out of every two households in the Netherlands, one of the households is a customer with AEG. That is a market share capture of 50% of the population. Those are incredible numbers.

Digging into Fundamentals

AEG works in a four pronged strategy, each with a specific purpose and objectives. The four prongs of their business are: The Americas, Europe, Asia, and Asset Management.

We know that AEG sells life insurance, pensions, and savings and retirement plans, and we know that most of their earnings (60%) come from the US. Taking a closer look at their balance sheets we can get a better picture of the company’s health. First let’s take a look at big picture trends to see how the company has fared up to this point. Revenues have trended upwards since 2015, along with equity and asset counts. Free cash flows took a major hit from 2016 to 2017, yet still positive. However, net income rose dramatically at the expense of a decrease in operating cash flows. So, we can begin to see the company is using its cash to generate more income for the company, this is a good sign. Now that we have the trend established, let’s see how the most recent quarter reported.

Quarter 3 Report

Corporate earnings increased 20% to 556M Euros. Return on equity increased 1.2[[ to 8.9%, and sales rose 54% to 4.5B Euros. The increase in earnings were driven by, “improved claims experience, higher fee revenue as a result of favorable markets, and lower expenses in the US.” The increase in sales numbers were a result from growth of fee-based businesses. Another main driver of increased earnings in this quarter is due to AEG’s Expense Savings initiative, in which they are on track to save 350 Million Euros by the end of 2018. AEG has increased its earnings the last five consecutive quarters, a great accomplishment.

AEG also reported record gross deposits of 41 billion Euros. The company says this increase is, “primarily driven by exceptionally strong asset management deposits and strong institutional platform sales in the UK.” The company says it remained true to its commitments in each of the four prongs of their business. For the Americas, the company improved their profitability in Life and Health insurance businesses. In Europe, the company positioned its Dutch business to resume its regular dividend payments. In Asia, capital regeneration turned into the black as a result, the company claims, of management decisions and actions. They also rolled out new propositions to help the company transition into the digital revolution. Finally, in the Asset Management sector of their business, the company deepened its presence in existing markets, as well as entered some new markets. They also secured strategic partnerships which will contribute significantly to their bottom line cash flows.

The company is looking for growth areas for new investments heading into the new year and beyond 2018. Most of their findings have led them to refining their search to Asian countries. The company said it wouldn’t chase growth in Asia for the sake of investing in Asia, but it is worth keeping an eye on especially if the Asian economies start to ramp up.

Potential Red Flags

One major potential red flag I see is the overall assumptions to company is placing on the markets returns both in the US and in the UK. For their models, the company is assuming an annual gross equity market return going forward of 8%. I’m not sure we will hit 8%, and if things start contracting, we would be lucky to get annual returns to hit 3-4%. This isn’t as bad as anticipating 10% annual growth, per say, nevertheless it is something to consider if the US fails to hit that mark, which would in turn force the company to adjust its models and pricings heading into 2018 and beyond.

AEG has in place a US micro hedging strategy within the company, in which the company puts an amount of capital into this hedging strategy to make sure they are not over exposed, and are prepared to weather any downturn in the US economy, which eases my nerves a bit.

Some Key Ratios

AEG is trading at 7.25 times earnings, making it better than 85% of the competitors in its industry. Price to book ratio of 0.43 makes it better than 94% of companies in its industry, a number that I love. Price to sales of 0.22 is better than 96% of competitors. It’s also trading at 6.42 times free cash flow, making it better than 64% of its competitors. In terms of all valuation ratios, AEG is at least better than half of its competitors in every category save Shiller PE Ratio.

AEG also sports a 5.00% dividend yield, which isn’t terrible at all. A nice return for holding on to a company whose charts are setting up quite nicely for a horizontal break pattern. Speaking of charts …

Charting AEG


From the weekly charts, you can see that AEG is forming a year-long right triangle pattern, with price inching closer towards breaking out of that 6.00 – 6.05 range. As a disciple of classical charting principles, I favor horizontal breakouts more than others because of the increased possibility of the trade working out. Notice how I didn’t say probability. I am a huge Peter Brandt disciple, and Peter Brandt always preaches that classical charting doesn’t give a trader probabilities of trades becoming profitable, but rather it gives the trader a possibility of gaining a profit with a trade. This is a huge distinction, and one that I emphasize heavily as well. Peter Brandt is one of the best, if not the best classical chartist on the planet. His words are worth their weight in gold bitcoin.

I am waiting until a clear break above the resistance line on the weekly charts before making an entry. At that point, I would place my stops somewhere close to below the 50MA, which would put it under the ascending part of the triangle, and far enough away to let the trade run its course and give it a chance to be profitable.

As always, please shoot holes in my ideas if you find ways to do so, and don’t hesitate to email with questions.

KORS, Bitcoin, and Natural Gas Commentary

Much to my surprise I haven’t received any feedback on my piece regarding Bitcoin. I believe that could be do to the fact that most people who receive my newsletter simply file it into their trash folder without ever glancing at what was said. Regardless, I will continue to send out my investment ideas and thoughts because no matter who reads it, it is what I love to do. Since my last newsletter, the Voyager Fund added a few positions which we will get to later.

First, I would like to talk about the losers of the Voyager Fund and why they are losing currently. Out of the 8 positions in the Fund (as of Nov. 12th), five of them are in the red. This isn’t a concern to me. Obviously I would love for each of my picks to be winners right from the entry, but that isn’t always the case, and it is foolish thinking to believe the contrary. Like I have mentioned before, most of my picks will turn out to be small losers. It is with the ones that I hit it big that make up for the small losses I suffer along the way, or what I like to call the ante in to playing the game of financial market speculation.

My losing positions are as follows: Long USOIL, Long USD, Long SRRA, Short EURO, and Short JNK. The long position in US Oil was triggered via a breakout of price resistance on the weekly charts, as Oil broke a key resistance level above $52. If you remember, I went long a basket of oil stocks, and all of those were hit for either small gains, or small losses (virtually a scratch play). I chalk that up to moving stops up too early and missing out on reversals from price declines.

Going forward I will be cognizant of where I keep my stops as to make sure they are at technical levels that prevent a premature exit. I am still bullish on my long-term position in oil. I entered on the weekly chart break, and my stop loss is set so that if I am wrong, I will be out of the trade and would be able to potentially take the short side of the oil price decline. Furthermore, the COT data shows an increase in positions for both the Producers & Users as well as the speculators. This is a good sign for the long thesis.

After cashing in big on my short USD trade a couple months ago, I reversed my position and went long. My thesis behind going long the USD is more of a derivative thought process. What do I mean by that? It is similar to second – level thinking. I am trying to think of how other people are thinking about things. The USD is looked at as the safest currency in the world, and a safe haven in times of crisis. Because of this logical thinking from the masses, it makes sense for me to go long the USD despite its overall lack of value as a currency. I like to leap on the backs of giants, one of which is Jim Rogers. Jim Rogers says (and I’m paraphrasing here), that the dollar will go up and turn into a bubble before it collapses. Whether he’s right or he’s wrong, I believe the probabilities are in his favor.

Moving on to one of my long equity positions, SRRA hasn’t performed like I thought it would after breaking out of an inverse head and shoulders patterns on the weekly charts. SRRA is a healthcare drug company that is trading at a negative Enterprise Value, and trading about half times book value. Although I am down in the position right now, I have no reason to not be bullish on the company. SRRA released its Quarterly Earnings on the 8th. Here are some of the earnings report highlights:

“- Chk1 inhibitor SRA737 Monotherapy trial expanded to eight leading centers across the UK – – On track to provide planned SRA737 Program Update in February 2018 – – $107.8 million cash expected to fund current operating plans through approximately mid-2019.”

When looking at their financial numbers quarter over quarter, the trend is continuing upwards: “For the three months ended September 30, 2017 , Sierra incurred a net loss of $10.0 million compared to a net loss of $15.2 million for the three months ended September 30 , 2016. For the nine months ended September 30, 2017 , Sierra incurred a net loss of $31.4 million compared to a net loss of $38.6 million for the nine months ended September 30 , 2016.” In summary, I like their cash position, I like the trend in their financial statements, and the charts are still not against me.

Going back to my currency positions, I took a short position in the Euro against the dollar as a basket type trade in tangent with my long USD exposure. I entered on a technical breakdown in price on the daily charts, and the charts are still in my favor. My final losing position is my short position on US Junk Bonds. JNK had a tremendous breakdown technically on both their weekly and daily charts. I entered the short position at the end of the week, and right now it is too early to say how the trade will turn out. Right now stops are set at $38, which is well off the current price of $36, and if hit, would indicate that my thesis was incorrect.

KORS Continues to Kill It

KORS is turning into that big trade I keep talking about that makes up for all the small losses. I entered KORS at 36.38 back in late July. Two strong earnings reports since then, KORS is sitting at 54.71. The position has increased 50% since initial entry, and at the designated stop loss, the worst case scenario would be a near 2% total gain on capital. Here is the notes from my original position entry:

“Risked 0.50% capital ($360). I have already expressed my fundamental interest in the company mainly because I deem it undervalued. I originally entered the trade on a false breakout within a channel, got out, entered again on another false breakout and got out before the heavy selling took place. Is three times the charm? Who knows? That is why I love risk management and limiting my losses first and foremost. I don’t care if I’m wrong two times before, because if I’m right this time, it will more than make up for the combined loss of the two previous trades of ~ 1.0% of capital.”

I risked 50bps of capital on this trade and if it hits my stop loss it will be for a 186bps profit. You can’t ask for a better trade. Once again, I always stress I never know how much of my success is luck and how much is skill and analytical abilities. Either way, this is a big win for the Fund regardless of where prices goes from here.

Long Natural Gas In the Commodities market, I took a long position in Natural Gas based on technical breakouts in the daily chart, as well as confirmation of a breakout in the weekly charts from a wedge pattern. COT reports show that both Producers / Users and speculators are approaching a net 50% size position. On the daily chart, price broke above the 200 MA, and on the weekly chart price broke the 50MA and could very well break the 200 MA starting tomorrow.

As always shoot me an email with any further questions you might have, or any comments you would like me to comment on.

The Big Post About Water

Let’s talk about water, good ol’ H2O. Water isn’t a commodity you can physically invest in like gold, silver, or wheat. Because of this, we have to look at ways to invest in water indirectly. What are some of the options? Right off the bat there’s public utility companies such as American WaterWorks; followed by agricultural businesses that produce food; finally you have potash companies that use their recycled water byproduct as a means to sell to other companies that are in need of it.

One of these companies that could expose a portfolio to water is Intrepid Potash Inc (IPI). Intrepid Potash produces and sells potash and potash byproducts in two main product segments: Potash and Trio. The Potash segment produces and sells potash to the agricultural industry as a fertilizer input, the industrial market as a component of oil and gas drilling fluid, and the animal feed market as a nutrient supplement.

The Trio segment produces and sells specialty fertilizer that consists of potassium, sulfate, and magnesium, and is mined from langbeinite ore. The vast majority of revenue is generated in the United States, which is also the location of the firm’s production facilities. Here’s the other cool thing about IPI, it sells water. Taking a look at the third page of their last 10-K it reads, “We also have water rights in New Mexico and Utah under which we sell water primarily for industrial uses such as in the oil and gas services industry”. But it isn’t enough to know that IPI sells water. It isn’t enough to know where they record their water sales on their balance sheets. It’s important to know why water matters, and what could drive its demand.

Why Water Matters

Water is used for almost everything we humans do in the world. Its one of the essential building blocks of life for crying out loud! Now before I get scientists shouting, “the world is 70% water you idiot, how could we run out?!” You’re right. The odds of us running out of water are almost zero. However, the water that humans need is fresh water. Freshwater accounts for around 2.5% of the overall water population. This means we have 8 billion people fighting over 2.5% of a resource.

According to the World Resource Institute, water use is expected to rise by 50% by 2025 in developing countries, and 18% in the developed world. A really cool website I found for those that are nerds like myself, is http://www.worldometers.info/water/. Worldometers.info records in live time the amount of water consumed per year (in millions of liters) along with some statistics. According to Worldometers, “population is rising about 80 million per year, and energy demand is also increasing around the world, with corresponding implications for water demand” (Worldometers.info).

Now that we know how much water humans are working with, it’s important to understand just how we use that water in our society. Going back to our worldometers.info statistics, “agriculture accounts for 70% of all water consumption, compared to 20% for industry and 10% for domestic use” (Worldometers.info). Another cool site to check out if you’re interested in water usage / risk is http://www.wri.org/applications/maps/aqueduct-country-river-basin-rankings/#x=147.30&y=8.70&l=2&v=home&d=bws&f=0&o=171. This website displays what the WRI calls an “Aqueduct Water Risk Map”. This map rates country from 1 – 5 (1 being less at risk, 5 being severely at risk) for water shortages. Along with providing the average score for the country, the map breaks it down into the three major industries: domestic, agricultural, and industrial.

Take a look at the Baseline Water Stress Score, which is the ratio of total annual water withdrawals to total available annual renewable supply. Examining the developed nations we find the following scores (remember, its 1 – 5, with 5 being the worst scenario and 1 being no worries):

North America

  • United States – 2.9 Average (3.5 Agriculture, 2.8 Domestic, and 2.5 Industrial)
  • Canada – 1.2 Average (2.4 Agriculture, 0.9 Domestic, and 1.2 Industrial)

South America

  • Mexico – 3.5 Average (3.7 Agriculture, 2.9 Domestic, and 2.9 Industrial)
  • Brazil – 0.9 Average (0.9 Agriculture, 1.1 Domestic, and 0.9 Industrial)
  • Argentina – 2.5 Average (2.9 Agriculture, 2.2 Domestic, and 1.8 Industrial)


  • South Africa – 3.2 Average (3.2 Agriculture, 2.7 Domestic, and 3.3 Industrial)

Middle East

  • Every Country Average > 4.0

So now that we have a clearer understanding of the world in terms of water usage, supply, and shortage worries, let’s get more granular and find out just how water is used in the industrial industry, which is where Intrepid Potash is located. The Canadian Society for Unconventional Resources has a great PDF describing the uses of water for the oil and gas industry, an industry IPI sells their water rights and water too. I learned a ton about how water is used in the drilling process, so I’ve pasted a few quotes from the article below.

“During the drilling process water-based fluid (drilling mud) is used in a number of different ways including lubricating the drill bit, circulating the drill cuttings out of the hole, containing formation fluids and facilitating the operation of sophisticated formation evaluation tools.”

“Hydraulic fracturing operations which use water as the primary fracturing fluid can require thousands of cubic metres of water. These large volumes of water are required to stimulate each section of the length of the lateral and to carry the proppant material into the newly created fractures.”

Where Intrepid Potash Fits In

Now we can finally move on to the vehicle for our water investment, IPI. Intrepid Potash is committed to expanding their water sales resources for the year 2017 and beyond. According to their latest 10-K, IPI mentions water in their speciality product sales, saying, “Through our existing operations and assets, we also have the potential to grow our offerings of salt, water, and brine with low capital investments”, and, “In addition to our reserves, we have water rights and access to additional mineralized areas of potash for potential future exploitation” (IPI 2016 10-K). Reading into the balance sheet, I realized that IPI doesn’t explicitly record their water revenue under any particular name, rather they place it under “Other Income” on their books. But before we go into their water sales, it’s important to take a look at the company as a whole.

The Fundamentals

IPI is currently trading at a 22% discount to book value and only 1.1 times sales. Their financial strength isn’t great, which makes it an area of concern for investment. IPI has a Cash to Debt ratio of 0.24, ranking it lower than 62% of the companies in its industry. However, it has an Equity to Asset ratio of 0.76, which is better than 88% of companies in its industry. Looking towards profitability, IPI currently doesn’t make money, but their trends are headed in the right direction. After reporting a Net Income loss of -$524M in 2015, IPI reported their most recent 10-K Net Income at -$61.88M, a tremendous recovery and tilt in the right direction. Free cash flow is slowly but surely making the turn towards positive. After a dismal 2013 FCF reporting of -$185.9M, IPI has grown their FCF to -$29.69M in 2017.

What I like most about IPI’s prospects is their dedication to reducing debt and raising cash levels. In 2014, IPI had $151M in debt compared to $78.02M in cash. Since then, IPI has reduced its debt to $88.02M and grown its cash to $20.7M (compared to the prior year of $4.46M).

So what is the biggest driver of growth for the company? Their ability to sell water. Taking a look at the balance sheets we can find how much of an impact the water sales have had on their bottom-line. Remember IPI reports their water sales as ‘Other Income’. Looking at the 2016 10-K, we see that IPI’s Other Income grew from $575M in 2015 to $1,106M in 2016, close to a 50% growth in income. That’s impressive. My thesis, backed by the research on water, suggests that the demand for IPI’s water rights and water usage will continue to bolster the bottom-line of the company, propelling the company into positive FCF and a greater Cash to Debt Ratio, and it should be then reflected in the price action. Speaking of price action, let’s take a look at the charts to round out this analysis.

Price Action / Chart Analysis

Right now the charts are depicting what could be a bottom in the bearish trend of IPI. If you look closer you can see a wedge forming at the end of this long saucer formation

Price action has already crossed 50 MA in a bullish manner, and I like the increased volume I’m seeing on the charts as well. Anything close to the 3.00 strike range would be a good entry in my books, and I would set the stop below the 50 MA, which if hit, would rebuttal my bullish thesis and get me out safely. Not too sure on how much to risk, but I would be sure to keep it between 0.50% and 1% of capital.


In pure supply and demand terms, the world will eventually need more usable water than it currently has. Whenever an imbalance like that occurs, there is always a time and place to make a profit from it. If water has the likes of Michael Burry digging into it, it should be worth your time to do some digging as well. Below this piece are the websites used to research this piece. I hope this thesis is a good starting point for those that want to dig in further. If you find anything of substance, shoot us an email. Also, if you see anything wrong with this, shoot holes into the thesis so I can see where I could’ve been wrong in my thought process.

Sources For Research





Investment Philosophy Part 2 – Diversification & It’s Shortcomings

I want to discuss part two of my Investment Philosophy series, Portfolio Concentration and Diversification. Although this is not the most important part of my philosophy (that was discussed in part 1), it is still very important for you as a potential investor in the Fund to understand how I think about such matters like diversification and the concentration of my portfolio.

Continue reading “Investment Philosophy Part 2 – Diversification & It’s Shortcomings”

Investment Philosophy Part 1 – A Word on Losses

I want to take the time to discuss my investment philosophy in a bit more detail as I believe it will provide you, a potential partner, more clarity into the mindset of your potential money manager. I will break these investment philosophy pieces up into three different parts, with this first part being about losses.

You might be wondering why I am starting with losses, given the main goal of firms is to maximize profit. That is not the main goal of Rockvue Capital. The main goal is to minimize losses and restrict drawdowns as much as possible. By doing this, I am able to let the profits take care of themselves, while preserving my capital, and your capital. Let’s breakdown how I do this in Rockvue Capital. (The investment philosophy discussed herein these three parts have solely to do with the Voyager Fund. The SteadFast fund is algorithmic and independent of discretionary action from myself).

Using Stop – Losses To Mitigate Risk

The most important factor in mitigating risk and drawdowns in the Fund is through the power of stop – losses. Stop – losses for those that aren’t familiar, are used in trading to set a predetermined price at which one exits a trade. Using an example, let’s say I want to buy stock XYZ on a breakout at $5 on a symmetrical triangle pattern. Now, on this trade, I will place my stop – loss order on a price at which my bet would be wrong. In other words, I would place my stop – loss at a technical point that would signal me to get out. If this still doesn’t make sense, feel free to email me with any personal questions.

Here is the most important part about using stop – losses: I have yet to sustain an individual loss of greater than 1% per trade. This is very important to me, and it should have the utmost meaning to you as a potential partner. Through the power of stop – losses and moving those stop – losses up as soon as I can, I am able to lock in profits as soon as possible, and try to get to breakeven as soon as I can. This is what I am referring to when I talk about minimizing as much risk as possible. Now that you understand a little bit more about how I manage risk technically from stop – loss orders, I would like to take the remaining time of this memo to discuss my views on losing in the markets.

How I (And You) Should Handle Losses

My view on losses may come as surprising to those who haven’t read my work before, or frankly who are reading this memo and haven’t read previous memos. I will make a lot of losses. Statistically my losses will outnumber my wins, the scale of which I do not know specifically. So far, the ratio is close to 45% winning percentage. I am not worried about this. In fact, I would be completely comfortable with a 1% win rate if at the end of the year I am net profitable. I don’t believe this will ever happen, but the point I am making is that I am a firm believer in Pareto’s Principle.

Pareto’s Principle states that 80% of outcomes come from 20% of the inputs. If I can focus on the 20% profitable trades, I can sustain 80% of my success from 20% of those trades. The reason that I am comfortable with this principle is that the losses I sustain are very small compared to the size of the gains I receive on my profitable trades. I hope that you understand this principle as a potential partner in the Fund. If the idea of suffering lots of small losses is something that you are not comfortable with, I completely understand, but I would love to discuss it with you personally before making a decision to either invest or pull capital.

Positive Asymmetry in The Fund

As a caveat for my talk on losses, I want to end the memo with a word on positive asymmetry. The Fund will at all times have a positive asymmetric skew to the profile of its returns. This goes back to the Pareto Principle I discussed earlier. If you look at a Normal Distribution, you will see a symmetrical bell shaped curve along the various probability distributions. This is what the return distribution will probably look like at Rockvue Capital: 

Image result for asymmetric investment return

As you can see, the amount of small losses (as the x axis shifts towards the left) will outnumber my wins, which is what we should expect going forward. however,  the power in asymmetry is that the smaller number of profitable trades will cover for the losses and (hopefully) return a net profit after commissions and expenses.

A Final Word

This first memo got a bit mathematical and technical, so I apologize if some of this material went over some heads, that was not the intention. When dealing with losses, it is important to get granular to understand the reasoning behind my philosophy on losses and the purpose of my stance to the firm.

Once again, all of what I do directly impacts your potential capital investment. For this reason, I want to be as transparent as possible with my philosophy. Stay tuned for Part 2 of the Philosophy Memos where I discuss the criteria on which I invest in equity positions.

A Little Portfolio Hospitality (AHT)

Well I’m finally fully moved into my townhouse, and after finishing some economics homework broke in the new casa by doing some research for any potential plays in the coming weeks. One thing before I get going … I tend to do my best research with the comfort of music in the background. It doesn’t have to be any particular type of music, mainly whatever I’m feeling that moment. For instance, the research I did to find this play came while listening to the Batman & Game of Thrones soundtrack. Not sure if working with music will help, but if you’ve never tried it, give it a test drive and see how it helps (or harms) your productivity. Volume up, let’s get crankin’.

REIT Investment Potential

Like always, the following company description is from Gurufocus.com: Ashford Hospitality Trust (AHT) is a real estate investment trust that invests in full-service upscale and upper-upscale hotel properties in the U.S. The company owns and operates its assets through its operating partnership, Ashford Hospitality Limited Partnership. All of its hotels are located across the U.S. and operate under the Marriott, Hilton, Hyatt, Crowne Plaza, and Sheraton brands. Ashford’s sole segment is Direct Hotel Investments, through which it owns hotels by acquisition or development. Ashford also provides real estate investment services, such as mezzanine financing, first mortgage financing, and sales-leaseback transactions. Its revenue streams include Room revenue, Food and beverage revenue, and Other revenue. Room revenue accounts for the majority of total revenue.

To the standard ‘value investor’, REITs are compelling investment equities given their usually high dividend yield coupled with a normally steady pay-out schedule. Institutional investors and boutique firms alike like to add REITs to clients portfolios as a way of exposing them to the real estate side of investing, without getting their client knee deep in the rabbit hole that is real estate investing. I like to think of REITs as the ETF before the ETF. If you think about it, there are very few differences between REIT equities and a standard ETF. Both claim to offer diversification and predictability, and both offer the investor a way to dip their toes into investment areas they otherwise wouldn’t.

I say that because AHT offers a 7.8% dividend yield, a percentage that is the highest amongst their competition. If you would’ve asked me a year ago what I thought of this company, I would’ve relished in that yield like I relish carbs on my cheat days … But these days not so much. To me, a dividend (if I’m on the long side), is the cherry on top of the trade. Because Rockvue Capital is pinpoint focused on creating positive asymmetry with each and every trade, a dividend for a stock we are long on is basically free money for a trade we would’ve taken otherwise. I hope you can see the difference I am trying to make here. I am not interested in this company because of the dividend, I’m interested in this company notwithstanding the dividend.

The Fundamentals

AHT is trading at a 26% discount to book value, and that is something given the high quality of their brands, and the fact that they are the leader amongst their competition in nearly every major category. With $4.28 cash per share, the current share price of $6.30 isn’t terribly overvalued just on a cash basis alone. Keeping in like with the discounts, AHT is trading a staggering 39% discount to sales, and is trading 3x its operating cash flow. Both of those last two metrics place it better than 99 and 97% of its competitors in its industry.

The Headwinds

AHT isn’t without its flaws, however. Debt levels remain significantly high compared to cash since the start of 2014, net income hasn’t been positive since 2015, and operating loss increased over the last year. Trying to figure out why these numbers are the way they are, I looked to their balance sheets. In terms of operating income losses, AHT didn’t sell as many properties as they did in previous quarters, leaving their Income From Sale of Property much less than when they did. Secondly, AHT reported a loss in their derivatives investments for the most recent quarter of (1,600+) compared to a positive income of near $6,000 (in thousands).

The company is taken measurable efforts in reducing their debt burden, and I’m not worried about the decreased selling of their properties, I’m more concerned with their playing around in derivatives. Although the loss in derivatives was small on the grand scheme of things, I would like to see management more disciplined in how they allocate capital towards derivatives, and save more of that money for the core of their business model.

The Chart

I like the chart set-up for AHT, which made me interested in the fundamentals aspect of the business. On the daily chart, AHT has broken its price resistance from the descending triangle. However, I would like to see price reach around 6.40 before entering on the long side. Let’s take a look at the Weekly Chart:

The weekly chart shows price bouncing off the support end of the descending triangle / wedge.

Entry point will be $6.40 with my stop loss set at $6.10. I would risk between 50 and 75 bps on this trade.

The market seems to be overselling on the decrease in net income, while not looking at the obvious value that is on AHT’s balance sheet, and the value of their properties and their brand. I like how management has handled the company in the past (aggressive buybacks in 08 – 09), and with their determined effort to reduce the overall debt burden, as well as shifting their focus to having their properties be franchise managed instead of individually managed, it creates for a more streamlined, efficient revenue business model.

Will update via email if I have entered into this trade on my paper account. As always, if you are interested in getting my trade alerts, shoot me your email and I will get you signed up.

Two Charts For Next Week Trading

Its been a crazy week with the first full week of classes starting, and yes, it is finally the last year of schooling for me! But with the Labor Day Weekend extending my freedom by another day, it gives me time to send y’all a heads up on what I am thinking about going into next weeks trading. Although I have dozens of companies that are on my “radar”, there are only a select few (if that) each week that could be a potential trade set-up. A lot of the companies on my radar are longer term set – ups, developing set – ups, or companies that I am waiting for a drop in share price. Going into this next week I have two main charts that I am focusing on for potential trades, both of which I will dig into here.

As always, if you have any further questions, or you think my idea is stupid and I am missing something blatant, please email me. I love discussing ideas and bullet – proofing strategies whenever possible.

Chart 1 – Silver

I’m slowly beginning to realize that my writing has developed a quasi fetish towards silver. In all seriousness, silver has been on my radar for months, possibly a full year. I bought physical silver back in 2014 which I keep as a stowaway, but that was before I started getting extremely serious about the markets. Silver futures charts are looking extremely interesting as a bullish set – up. When it comes to charts, I like to follow Peter Brandt’s style (which, why wouldn’t one want to, with his 42% annualized return). Like Brandt, I first look at the weekly charts to see if there is a pattern setting up, from the weeklys, I dive into the dailys for an entry point and to place my stop losses. After recognizing a pattern on the weekly chart, I will use the daily chart to move my stop losses up or down according to which side of the trade I’m on.

Here’s the Weekly Chart for Silver Futures Continuous:


From the charts, you can see the descending wedge pattern forming. What is important to note is that price action already broke the 200 MA, and is at the literal tip top of that resistance line going back into mid 2016. This will be the fourth time silver has tested its descending resistance level, and if it breaks through this time, it could be a powerful move upwards. That’s the beauty of waiting for chart patterns to develop: There is a clear right or wrong when it comes to your trade. If it breaks through that price resistance, I will put an order in and place my stop right below the 200 MA on the daily chart.

I am a bit more confident in the possibility of a breakout in silver this time around because I have a potential double confirmation from both the weekly and the daily charts. Whenever you have two different time charts confirming a pattern, your odds of success increase. That’s what this entire game is about anyways, creating a positive edge in the markets.

Here is a picture of the daily chart for the same Silver Continuous Future:

What’s important to notice is that there is a confirmation of price breaking out of the resistance on the daily chart, and the weekly chart is close to follow. That is why Tuesday’s trading day is so important for silver, and will determine whether or not I place an order.

Now onto the topic of risk capital, I might edge closer to 100bps of risk, just given the increased confidence I have in the charts and in the sentiment around the market (increased volatility). I will confirm on the day of the trade if and when that happens, but for right now I am looking between 75 and 100bps risk.

Chart 2 – Jakks Pacific, Inc. (JAKK)

Most of you reading this have experienced Jakks Pacific merchandize at least some point in your life, most notably during the Holidays. GuruFocus has a great description of Jakks Pacific, saying:

Jakks Pacific Inc is a toy and leisure products manufacturing company. Its products offering include traditional toys and electronics such as action figures, toy vehicles, dolls and accessories, ride-on toys, toys for pets. They also offer role play, novelty and seasonal toys such as dress-up, pretend to play toys, Halloween and everyday costumes, junior sports, and outdoor activity toys. The brands under which these products are sold include Road Champs, Spy Net, Fisher Price, Kawasaki, JAKKS Pets, Disney Frozen, Black & Decker, Spiderman, Toy Story, Sesame Street, among others. Its products are sold to customers in the United States, Europe, Canada, Hong Kong, and Other parts of the world.

In short, they make toys for children (Unless there’s one reader who yells to himself, ‘They’re collectible figurines thank you!’). Unlike their toys, their charts are ugly, and times are tough for the company. Before we dig into the technicals, let’s see why I am evening worrying about JAKK as an investment. Remember, with equities, I always put more emphasis on the narrative around the company before I assess the chart. This is something that I file under the category of ‘Strong Opinions Weakly Held’ because certainly there have been times where I have seen a chart so tantalizing I will, as George Soros says, “Buy First and Investigate Later”.

The first thing that popped up to me with JAKK was their valuation. JAKK is trading for roughly 50% of Book Value. That discount is better than 80% of competitors in its industry. Because of this, it begged the question in my head, ‘How could such a huge, reputable brand like JAKK be trading at such a steep discount?’ The digging led me to their latest quarterly report.

Why The Sell – Off Occured

The biggest reason for the share decline was their drop in sales. JAKK reported a 10% decrease in sales QoQ, due to what they referred to as Sales Comparisons and Timing of Expenses. The decline in sales was linked to the decline in the retail space as a whole, with JAKK forced to suspend the sale of their product in certain stores due to shutdowns. To add to the decrease in sales, JAKK COGS (Cost of Goods Sold) increased 10%, a double whammy negatively affecting bottom line profits and margins.

The other major headwinds for the company that affected the bottom line was the suspension of toys from the new Star Wars movie and Frozen. Frozen provided a healthy dose of sales revenue for the company after that movie rocketed to #1. The good thing about a company like JAKK is that the movie industry isn’t dying. In fact, demand for super hero movies seems to increase. With Marvel and DC virtually dominating the big screen production, one can safely assume that JAKK will have more than enough content to dig from for their toy production. On that note, I want to discuss why I think the market isn’t realizing the importance of the brand name, the demand for products from movies, as well as the increase in free cash flow from the company.

What Wall Street Doesn’t See

Sometimes I think Wall Street gets too wrapped up in sales numbers and forgets other crucial aspects of a business that are not only performing well, but are increasing in their performance. When it comes to JAKK, that increase in performance is from free cash flow. Although sales numbers decreased 10%, JAKK was able to increase their FCF by 101% and their operating cash flow by 122%. The company also is trading for $3.84 per share in cash, which is a $0.40 discount to current price. In other words, Wall Street has beaten down this stock merely off of a missed sales number for one quarter.

JAKK is taking direct effort to fix the problems of the most recent quarter. JAKK is increasing their master global reach of toy licenses in a host of countries, and most recently opened up a branch in London. For the remainder of 2017, JAKK is branching into the sporting / outdoors industry as well as Cosmetics.

The most important aspect of the JAKK business developments come from their online space. I stress this with every company in retail that I investigate … How are they competing online, and how are they making themselves more accessible online? JAKK has expanded and grown its online presence tremendously. Online sales are up 50% YoY for the company, a great sign of mobility.

The Chart


Notice anything crazy about this weekly chart? JAKK hasn’t been this low since 1997. To put that in perspective, they haven’t been this low since my 3rd birthday. At these levels, there is price support, its just very far dated. If it can hold this price level though, it would present significant support from it. Moving on to the daily charts we find a similar story.

On the daily charts, JAKK is very close to breaking both price resistance levels going back to the start of 2017, as well as the 50 MA. Whenever I dissect these companies that are trading at a steep discount to book value, and even a discount to cash, it’s extremely important to try to increase the possibility of buying after a bottoming formation. Note: I am not trying to ‘pick’ a bottom in a stock, what I am saying is that its important to buy off of a basing pattern with momentum heading upwards.

When looking to buy JAKK, my entry position would be on the 3.65 – 3.70 price range, and I would put my stop loss around the 3.30 price range, right below the price support on the most recent coiling pattern formation.

Takeaway & Email Notification

These are two of the top charts that I am paying attention to coming into the trading week. If you have any concerns or questions on these two potential trades, shoot me an email or text if you have my number.

One thing that I would like to stress is that this website isn’t the only place that I communicate with potential investors or partners interested in investing with me. I have a list of people whom I email on a semi regular basis where I discuss individual trades and results of my two funds. If you would like to be included on this email list, leave me a comment in the comments section, or shoot me a personal email regarding your inquiry.

Portfolio Update & Watch List Wonderings

There are a few companies that I have on my radar that I could potentially pull the trigger on if the price action works in my favor. Oddly enough, all of these positions are on the long side. I say oddly enough, because if you’ve been reading this website for a while, you’ve picked up on my bearish overall macro view of the markets. Yet, like I mentioned, my macro view doesn’t infiltrate into my ability to find value in bullish or bearish situations.

I’ve dug through the fundamentals of each of these companies, and I haven’t necessarily written a post about each of them, because I’m thinking about writing pieces about companies after I’ve bought them. It seems like a weird concept to think about, but I am focused on the long term. If I start to manage money for people, I don’t ever want to feel like I’m front running a trade. This is also the reason I am considering not being specific in the companies that I invest in once I start managing capital. It’s a fine balance between transparency and integrity.

I’ll take y’all through some of the companies on my watch list, as well as my current portfolio as it stands to this day (August, 17th, 2017).

Watch List Wonderings

  1. GameStop (GME)

I wrote a piece on GameStop that you can find here in which I outlined the bullish thesis for the company. For the sake of time, I will not rehash the article. The one thing that kept me from buying into my thesis was the price action. That is close to changing. Let’s take a look at the chart:uq4hxGFi[1].png

You can see the descending wedge chart formation on the daily charts is long in duration. I am looking for price to break that descending resistance level. At first, I thought about entering on that triple bottom price around $20, but that is something I am still internally debating when it comes to entry point. Part of me knows I am missing out on some alpha by waiting for a break in resistance, but at the same time, I know that I increase my odds of being right if I enter on a breakout from resistance levels. I will continue to adapt, hypothesize, and test those strategies until I feel comfortable entering on either one without hesitation. Haven’t bought in yet, still staying patient.

2. XG Technology (XGTI)

I became bullish on XGTI months ago, never got around to writing a piece about it, but it has come up very frequently when Jacob and I discuss potential investments. Since that time, the stock had somewhat of a false breakout and has since retreated below its 50 MA in a bearish manner. However, what is perplexing is that the latest quarterly results were very impressive. Most impressively, the company no longer has to file a “going concern” notice on their SEC filings, indicating sustainable cash flows, profits, and revenues. That is huge. I don’t know why the selling is happening, but I want to get to the bottom of it. If I can’t find a good reason for the selling, I will be patient and wait for the price action to turn so I can hop in. I hope I’m patient enough to wait for the drop to continue down to the 1.60s area, in which the company has support technically.

3. Silver

Ah yes, silver is back on Rockvue Capital’s radar screen. Truth be told, it never left. I wrote a longer piece about a potential breakout formation on silver, but soon after that post, the bullish thesis depleted. I ended up taking the short side of the silver trade and making close to 250bps of profit on the trade. That remains one of my favorite trades simply due to the fact that I wasn’t gun-ho on my thesis, and I was able to change my mind when the narrative and the price action changes. That is something that you as a reader or potential investor will and should know about myself. I make predictions, I make hypotheses about the future based on evidence, research, and macro settings. However, I am very quick to reverse my thesis if news changes, or if price doesn’t react how I thought. I am not in this game for ego’s sake. In fact, if I wanted to bolster my ego, I would stay doing strictly analysis, instead of putting my money where my mouth is. If I pick a loser, I get out quickly. I don’t care about being wrong. I care about making sure I don’t lose money. Period.

After scoring a large profit on the short side, I dismissed any trade in silver for a month or so, however, the price action is looking tantalizing. With the threat of North Korea at all time highs, racial tensions not seeming to improve, the psychology of the investor may want to moveinto something more “stable”, such as precious metals. The charts are looking interesting with silver flirting a break of the 50 and 200 MA. 

This trade won’t happen for a couple of weeks if I go through and decide to pull the trigger. I am looking at the weekly charts to give me the green light, but I want something real, something expansive for me to make my entry. I would more than likely put my stop below the support line drawn there around the 15.85 – 16 region.

4. Russian Ruble vs. US Dollar (RUBUSD)

I’ve written extensively on how bullish I am about Russia, their economy, and the future of their agriculture. I am a huge follower of Jim Rogers and I read his stuff daily. Although the US Government increased their sanctions on the country, I see positive price action in their currency against the dollar. The ruble is close to breaking the 50 and 200 MA on the daily charts, and on the weekly charts, the 50 MA is acting support for price. I am already short the dollar in my portfolio, but I keep this on my watchlist for a longer trend play. 

5. Cotton (in USD on Forex Market)

I went 3/3 on cotton trades so far this year, going long once, and short twice. Cotton is approaching a key support level, so I’m waiting to see what the price action does once it hits that point. It’s had 7 straight red days up until this point. If it breaks down below support, I’ll take the short side of the trade. However, if it bounces, I might take the long, place my stop extremely close to my entry, and play for a bounce back gap up. When it comes to commodities, I am still betting small around 25 – 45 bps per trade. 

6. Ovascience (OVAS)

This net net company peaked my interest a few weeks ago, and I wrote a report on them which you can find here. OVAS is a net cash play, trading less than its net cash value. I love these investments. For the most part, these are the investments I want to comprise most of the portfolio on the equity side, however, I cannot predict with any certainty the type of investments that will compromise the fund except for the fact that the fund will be comprised 100% of investments that are undervalued. OVAS is breaching the 50 MA again, and I am looking for a more solid move upwards on the backs of a healthy quarterly earnings statement. 

Truth be told there are about 20+ companies that are on my radar right now, the price just isn’t right for a buy. If prices fall to where I would like, I would be much more frequent with my analysis and updates on where I am looking. I am steadfast in my patience not to overpay for any company. No company deserves to be bought at a premium. I am content looking for dollars trading at $0.40.

Portfolio Update

Now, onto the current portfolio as of today August 17th, 2017. The portfolio has 13 positions split between currencies and equities. This shouldn’t come as a total surprise if you’re a frequent reader of my blog, but I will continue to stress: My general thesis of the market in no way, shape, or form influences my individual investment selections. I am still finding value in US Equities. Even amongst these insanely high multiples there is value to be found and extracted, to say otherwise is naive and shortsighted. Not all of my equity positions are long, however. I am short two.

Currency Positions

  1. Short USD (DXY) – Risk: -30bps ($233 gain)

I’ve been on the bearish side of the dollar trade for a while now, even getting out too early on the short before getting back in to ride the trend I am currently on. The dollar is at a precarious point in price action, with any break below support being the windfall of the collapse of the dollar (boy that sounded all doom and gloom, I must be reading too much Jim Rogers). I still think we will see a bump in the dollar as people chase into it when equities and global economies collapse, seeing the dollar as the worlds save haven currency. Of course, the dollar as a save haven is the equivalent to a water fall mirage in the desert … It’s not really real, and it’s not really there. I’m debating on whether to move my stops closer, or farther back to play a potential retrace from the 50 MA. Will keep y’all updated. 

2. Short British Pound (GBP) – Risk: 42 bps ($322.49)

The pound broke its 50 MA in a bearish manner and I took the short side of the trade risking 42 bps. If you remember, I played the pound on the long side and made a handsome profit, so I’m taking my chances on the short side. 

Equity Positions

  1. Valeant Pharmaceuticals (VRX)

Yep, the company that famous hedge fund manager Bill Ackman bought in the near $200s and sold in the $8 – $9 is the same company I am going long on. It’s completely unfair to use VRX as a pedestal for my investment decisions compared to Ackman because every investor makes mistakes, the best of them. What I hope to do and continue to do is learn from the bests’ mistakes, that way I do not repeat them with your or my own money. All that I will say on the matter of this company with regards to Ackman. Ackman let his ego get in the way of him cutting losses and moving on. That, I can assure you, will never happen at Rockvue Capital.

Anyways, Valent is an interesting play in terms of their debt restructuring. They still have a very long way to go, but their price action on the weekly charts indicated a buy signal, and I am risking not too much on this trade (24 bps as of today). 

2. Mechel Pao (MTL) – Risk: 23 bps ($174.8)

MTL is a Russian oil company that is trading around 3 times earnings, and about 1.05 times free cash flow. Russia’s VEB also just approved of MTL’s debt restructuring program, so it will enable MTL to start reducing its debt rather quickly, while at the same time keeping its most valuable assets under house. I like the play because there is a population boom in Russia as I’m typing this. MTL is the leader in oil and gas distribution within Moscow and the surrounding areas. 

3. Michael Kors (KORS) – Risk: – 79 bps ($604.89)

Jacob brought this company to me a few weeks ago and I really liked it from the fundamental standpoint, it was the price action that I wasn’t thrilled about. However, after a stellar earnings report, absolutely crushing Wall Street estimates (much to the estimation of both Jacob and myself), the stock exposed itself to a tremendous buying opportunity. I will not go in depth on the fundamentals, earnings, or outlook of the company for the sake of length in this post. Needless to say, KORS could potentially be one of our biggest trade winners of the year. My entry point to this trade was right as price moved above 50 MA on heavy buying volume (technically always a nice sign to see when fundamentals match the technically bullish thesis). From that point I held on for the ride and was extremely lucky to catch the major gap up movement in price seen in the chart below. 

Right now the trade is sitting at a worst case scenario 80 bps profit. If KORS can break through its next resistance level, we could see it really start to take off. This is a trade where I will let run as long as possible, moving my stops up like a sniper. KORS has the fundamentals to run.

4. Intrepid Potash (IPI) – Risk: 26 bps ($197.87)

I wrote a large piece on water and how IPI works into that dealing for the guys over at Macro Ops. I do work for them as well since I expressed interest in joining their group as a volunteer intern gig. Any chance I get to surround myself with those that know more than me is a win for me, and this was huge. Alex and the guys at Macro Ops are some of the sharpest people I’ve personally come to know in the investment space. It’s been a pleasure working with them for a few months now, and I am very optimistic about our future relationship. Nevertheless, IPI came out with great earnings, beating analyst expectations, and the price action presented a buy signal. I like IPI for the water rights they own, as water will become scarce the greater the population increase.

I entered right as price action broke resistance, and as a perfectionist, I missed the best timing by a day, but I’m still in the black on this trade so I can’t nitpick too much. 

5. Urban Outfitters (URBN) – Risk: 59 bps ($453.12)

I don’t know what it is with Jacob and teenage retail clothing stores, but he sent me URBN along with AEO and the like, and even wrote an excellent piece on L Brands, the parent company of Victoria’s Secret … I might have to have a talk with him about that. Humor aside, URBN crushed earnings and the stock catapulted 17%, I bought on that rally as price action broke key resistance levels. It has since then retreated, and I am moving my stop loss up right below the 50 MA. If the stop loss gets hit, I’ll know it was a false breakout. However, if it bounces from the 50 MA it could merely be a patented bullish retracement. 

6. Streamline Health Solutions (STRM) – Risk: 40 bps ($307.80)

STRM came across my radar after breaching the 50 MA in a bullish manner. There is good reason for their shares to be reaching new highs. In late June the company recorded record revenues and net income. Revenues jumped 26% and Net Income increased 79%. Those are good numbers. The company is currently trading at a 20% discount to its sales, and it is trading slightly above book value. Not a deep value play, but a value momentum play nonetheless.

7. Rubicon Technology (RBCN) – Risk: 50 bps ($385.73)

Rubicon Technology Inc is an electronic materials provider that develops, manufactures and sells monocrystalline sapphire and other crystalline products for LEDs, RFICs, blue laser diodes, optoelectronics and other optical applications. This is a NCAV play. RBCN trades at a 43% discount to NCAV, which is an extremely comfortable margin of safety (focusing on minimizing the losses). Their most recent earnings report reaffirmed my beliefs that the company can turn it around. The company is reducing their general expenses, cutting staff where it can, and slowing the overall cash burn of the company. 

8. PDL Biopharma (PDLI) – Risk: 18 bps ($135.47)

Good ol’ PDLI. This is a stock that Jacob and I have watched since the very first thoughts about Rockvue Capital came into our heads. I wrote an overview about them, which you can find here. In it I expressed my impression of the company’s CFO Jeff Garcia, as well as my confidence in its cash and balance sheets to ride out the turbulent times of healthcare limbo. 

I will be transparent and say that although I am long term bullish on this company, I did short it after it first failed to break resistance. I walked away with a small, scratch profit. I do not know if that is something I will do into the future as a defacto put option, per say. However, I took the long side on the weekly charts as it broke price resistance as well as 50 MA. It is also important to note that when both daily and weekly charts are offering a buy signal, it is usually a higher probability of being a true breakout (notice I didn’t say sure bet, there is no such thing).

9. Short Netflix (NFLX) – Risk: 27 bps ($206.32)

I have wanted to short NFLX for the longest time, not because I hate the company (I love Stranger Things, Sherlock, and being able to watch The Big Short almost monthly), but because I hate how the company is run. Much like TSLA, NFLX funds its content through mountains and mountains of debt. At some point investors should realize that this isn’t a sustainable way to fund a business, no matter how many people enjoy using the service (a la SNAP, APRN, etc.). At the end of the day, when I delve through the pages of the Intelligent Investor, I’m reminded that no company is too big or too different to be withheld from the same analytical integrity as the rest. 

10. MannKind Corporation (MNKD) – Risk: 43 bps ($332.80)

MNKD is a developmental biotechnology company that specializes in diabetes and cancer drugs. MNKD is also a discounted cash flow play, with their DCF intrinsic value weighing in around $14 per share, so the current share price of 1.43 is trading at a hefty discount. I really liked the price action in the stock, and I am interested to see how far it will run. Not a true net net stock, not the deepest of value, but there is still momentum from solid earnings. 

11. Short High Yield Bond ETF (JNK): Risk – 17 bps ($131.89)

This trade was something that I have been trying to figure out the best way to do, and I still don’t think its the best way in terms of overall net profit, but its the best way given what I can do right now on the paper account. There is a bubble in the bond market and the first place I am looking to short that bubble is the high yield market, which is overvalued more-so than the rest. As interest rates continue to rise, it will make lending more expensive, which in turn will make investing less appetizing. The price action confirmed my bearish narrative as it broke key support levels both in price and in 50 MA. 

Now I just need to really see if price can fall below 200 MA. If that happens, it could be a much larger winner than I had thought.

Concluding Remarks

If you would like further explanation on the positions in the portfolio, or if you are interested in some of the companies that are on my watchlist, please don’t hesitate to drop me an email. I would love to take the time to explain it in further detail if you express the desire.